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Economists Urge Preserving Deduction

By The NonProfit Times - April 25, 2013

Describing the charitable deduction as a “proper, beneficial and socially cost-effective feature” of the federal income tax, some 230 economists have penned an open letter urging that it be preserved.

The 344-word letter reads, in part: “A variety of voices will fairly claim their tax situation is unique, deserving of special treatment. However, only the charitable deduction can make this case without reservation or equivocation.

“For every other tax incentive, the tax benefit follows some action or aspect relating directly to and benefitting the taxpayer. A donor making a charitable deduction, in contrast, benefits neither the taxpayer nor the receiving institution, but rather the population that institution serves, whether unwed mothers, the environment, education or religious engagement.”

The economists present the case that it’s “illogical” to tax the donor on money that they have given away. Individuals last year made $218 billion in charitable contributions.

The vast majority of the signatories are economists from universities around the nation but not all. The list also includes a former director of the Congressional Budget Office (CBO) as well as representatives from the Heritage Foundation, The Economic Outlook Group, LLC, and the International Council of Shopping Centers, among others.

The letter appeared as an advertisement in today’s editions of the Washington, D.C. newspaper, Politico. The Alliance for Charitable Reform (ACR) circulated the letter for signatures and paid for the ad.

Observers fear that proposals to limit the deductibility of charitable contributions to 28 percent, and other plans that lower income tax rates, would decrease charitable giving.

A report released yesterday by the Center for Effective Government (CEG) estimated that President Obama’s plan for the 28-percent cap would reduce giving anywhere from $4.7 billion to $9.1 billion annually. A proposal by Sen. Paul Ryan (R-Wisc.) could reduce giving by as much as $6 billion to $11 billion a year.

The center prefers a tax credit if Congress insists on tax policies that lower rates or limit the deduction. Instead of limiting the deduction, CEG suggests eliminating tax breaks that encourage corporations to shift jobs and profits overseas, imposing a tax on Wall Street trades, and eliminating the tax loophole that allows the wealthy to avoid capital gains taxes when bequeathing assets to heirs.

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